Project Name: Vertex Protocol
Vertex is a cross-collateralized order book DEX with unified margin across spot and perps trading on Arbitrum. Since launching in April 2023, Vertex has grown to the leading DEX on Arbitrum by daily volume and is consistently one of the top 10 gas-consuming applications on the network.
Trading volumes to date exceed $7.9B in aggregate, with $2B traded in the last 30 days (as of October 2, 2023). During that period, Vertex has also achieved:
- $9.1M in TVL.
- 6,203 unique depositors.
TLDR: Vertex STIP Round 1 Highlights — Slide Deck:
Team Members and Qualifications:
Darius Tabatabai – Co-Founder: Head of Trading at CrossTower and JST; Global Head of Precious Metals Trading at CS and Global Head of Metals Trading at BAML; 20 years of trading experience in options, commodities, and FX.
Alwin Peng – Co-Founder: Youngest-ever employee at Jump; Founder at RandomEarth (NFT marketplace on Terra).
SJ Park – Head of Strategy: 10 years of trading experience in Rates and Credit; Portfolio Manager at Goldman Sachs.
Jeff Blockinger – General Counsel: 26 years of legal experience across multiple disciplines; Chief Legal Officer at Och-Ziff, taking Och-Ziff public in its IPO; CEO at Association for Digital Asset Markets.
Web App: app.vertexprotocol.com
Documentation: Overview - Vertex Docs
Discord: Vertex Protocol
API: API - Vertex Docs
SDK (Typescript): Vertex Typescript SDK - Vertex Docs
Contracts: Contracts - Vertex Docs
Do You Acknowledge That Your Team Will Be Subject to a KYC Requirement?:
Requested Grant Size:
Trading Rewards = 1.35M – 2.55M ARB total (450K – 850K ARB per 28-day epoch)
Fusion Pools: Powered by Elixir Protocol (“Elixir”) Liquidity Incentives = Up to 450K ARB total (150K ARB per 28-day epoch)
Total = 1.8M – 3M ARB (600K – 1M ARB per epoch)
The higher end is achieved if:
Vertex averages in excess of 140M USD volume daily. (>2x current levels)
Elixir onboards > average 10M USD TVL.
Elixir currently has >5M in stablecoin liquidity demand for Vertex Fusion pools.
Naturally, this brings additional liquidity into the ecosystem.
About Elixir Protocol
As part of the Vertex proposal, the grant will help subsidize Elixir Liquidity Providers (“LPs”) (available on the Vertex front-end shortly) with a baseline level of $ARB APY that incentivize a core base of liquidity while increasing the volume of Vertex as an Arbitrum-native DEX that positively impacts broader Arbitrum chain at large.
Elixir’s protocol will be powering Vertex’s upcoming “Fusion Pools” product, allowing users to supply USDC collateral to build up the orderbooks of perpetual futures as well as spot pairs on the exchange. End-users will tap into the VRTX incentives offered by Vertex in our ongoing incentives to reward their liquidity.
Elixir is building the industry’s first decentralized, algorithmic market-making protocol. Through the Elixir Protocol, anyone will be able to passively supply liquidity to orderbook pairs on perp DEXes across the space, earning subsidized APYs from existing long-term liquidity incentive programs offered by exchanges like Vertex.
Elixir’s underlying infrastructure is decentralized and high-throughput. The off-chain protocol reaches consensus on every order placed on an exchange. The infrastructure is similar to Arbitrum’s security model, with the protocol’s fraud proofs posted on-chain after being validated by a network of (at the present moment) 15,000 testnet v2 validators. All contracts are audited by Trail of Bits, with the Vertex integration going live in the coming weeks.
Elixir has roughly $5M in institutional capital lined up as a core base of liquidity for Vertex pairs, not including the retail liquidity from farmers and users that this will unlock. On launch, they will also make it as easy as possible for users to bridge capital from any chain into the Elixir contracts on Arbitrum via a native Stargate integration.
For further information about Elixir:
- Website: https://elixir.finance/
- Documentation: https://docs.elixir.finance/
- Twitter: https://twitter.com/ElixirProtocol
- Discord: Elixir
Vertex currently runs a generous rewards program. The program will continue alongside the incentives program proposed below giving dual incentives for trading to users, with approximately 10M VRTX tokens being allocated to each epoch.
The grant will target increased volume and liquidity via Vertex’s highly performant orderbook architecture.
The grant will be used for three primary purposes:
Incentivize Community-Based Market-Making (Elixir):
Vertex and Elixir have been partners for several months, and are poised to finalize the integration of Elixir’s Fusion Pools on Vertex’s front end, which allows retail users to LP orderbook pairs on Vertex and accumulate $VRTX Trading Rewards.
Incentivizing Arbitrum DeFi users deploying liquidity into the Elixir fusion pools on Vertex with a baseline APR of 15% in $ARB on their assets.
Rewards on trading fees up to a maximum of 75% of the taker fee paid. The balance will be split proportionately if:
75% * Total Trading Fees > Allocated Grant Available
Sequencer Fee Removal:
- Should this proposal pass, Vertex is committed to removing sequencer fees on all trading pairs for the 3 months during which the incentives would be in effect. For a summary of Vertex’s sequencer fees, you can find them in the Vertex documentation here.
Trading fees and liquidity incentives evince a significant impact on the demand for trading on any given exchange venue. Vertex already offers class-leading fees: the grant’s motivation is to increase liquidity and trading volumes by introducing more users to the Arbitrum ecosystem via incentivizing liquidity and broader participation in the ecosystem.
The proposed grant would unlock a compelling trading incentive structure without sequencer fees – bringing more capital to Arbitrum to trade. Additionally, the proposal would empower Vertex to maximize the transaction activity of on-chain traders.
Paired with a performant orderbook and broad product offering, trading rewards will accelerate Vertex and Arbitrum’s growth trajectory, stimulating trading demand and onboarding new users into the Arbitrum ecosystem.
The grant for each epoch will be equal to the total of:
Trading Rewards = Min [USD Volume * Trading fees * 75%, 850K ARB per epoch]
Elixir Incentives = Min [15% * TVL * ⅓, 150k]
Total = 600K - 1M ARB per epoch
If the total Taker Fees over 3 epochs (roughly three months) do not amount to a sum greater than 3M ARB, the remaining balance will be returned to the DAO.
Funding Address Characteristics:
3/5 multisig with securely stored private keys distributed across the Vertex core team.
Vertex Router: 0xbbee07b3e8121227afcfe1e2b82772246226128e
The ultimate goal is to position Vertex as a premier order book DEX that can overtake dYdX as the leader in the DEX space within DeFi – attracting more liquidity and users to Arbitrum. Primarily, achieving a positive outcome means surpassing dYdX in both:
Accomplishing the intended objective will elevate Vertex and Arbitrum, and infuse the Arbitrum ecosystem with increased liquidity and interest from traders – one of the largest user demographics within DeFi. Under extended bearish market conditions, pursuing a strategy that captures more traders and creates a moat around that inflow of new users is a compelling long-term tactic for the Arbitrum DAO.
A potential surge in trading activity and users can be harnessed by other projects in the Arbitrum ecosystem. For example, more organic, on-chain trading demand native to the network fosters a ripple effect across other Arbitrum projects where Vertex can serve as a liquidity hub for low-cost, performant trading.
Newcomers to the Arbitrum ecosystem seeking more cost-effective on-chain trading can use Vertex as a starting point to explore everything Arbitrum has to offer.
Key Performance Indicators (KPIs):
KPIs for success:
Elixir LP Program
Given the focus on TVL for this part of the program, 150K ARB is to be allocated every month for three months, with yield capped at 15% for LPs.
If TVL > 10M USD, all ARB will be distributed.
If the average TVL over that period is < 10M USD, then a pro-rata amount will be distributed, with the balance sent back to the DAO.
Note: Depending on the market price of ARB tokens and average TVL over the grant period.
Trading Rewards Program
The key KPI for the trading rewards program will be trading volumes. As set out in the grant size justification below, it is envisaged that the grant will only be fully utilized if average daily volumes are in excess of 140M USD daily (depending on ARB token prices during the course of the program).
How will receiving a grant enable you to foster growth or innovation within the Arbitrum ecosystem?:
Bring TVL to Arbitrum:
Traders seeking to benefit from Vertex’s market-leading fees and proposed liquidity incentives during this period will need to deposit assets for trading on Arbitrum. The proposed incentive structure, combined with Vertex’s unified margin engine and hybrid design, provides a more compelling case for both retail and sophisticated traders to become Arbitrum-native users.
Liquidity Providers (LPs) market-making via Vertex’s partnership with Elixir Protocol will also need to deploy capital into the Arbitrum ecosystem.
The activity growth encouraged by incentives will also encourage more market-making activity. The benefits to market-making amplify as increased volumes boost market-maker profitability – capturing more institutional capital on Arbitrum.
This on-chain liquidity can be deployed to further other activity within the Arbitrum ecosystem, including yield strategies, arbitrage, and price discovery – all of which benefit other protocols besides Vertex.
The addition of Elixir Protocol will help distribute this activity to community members who can become a part of the core liquidity on Vertex.
Generate Sequencer Revenue:
Increased on-chain activity generates more revenue for the Arbitrum DAO via gas fees. Essentially, a portion of this grant converts ARB tokens into ETH sequencer fees, helping to diversify the DAO Treasury’s revenue source.
Diversifying treasury revenue sources is a highly relevant topic for the Arbitrum DAO at large, and has often been an area where many DAOs have struggled in the past – typically, maintaining a significant majority of their capital base in the native token. It’s an area where Arbitrum can choose to be more judicious and help promote activities that further this aim.
Justification for the size of the grant:
Liquidity incentives can potentially push Vertex volumes into the top spot for DEXs across ecosystems, unseating dYdX as the market leader – and benefitting the broader Arbitrum ecosystem. In the longer term, it would help Vertex evaluate the effect of lower fees for capturing more trading activity to the benefit of users and partners.
As incentives are disbursed there are two main outcomes:
<~140M USD Daily Volume:
- Vertex fails to grow more than 2x from current levels.
- Incentives are capped by 75% of trading fees provision.
- Full grant request is not needed, estimated cost < 3M ARB.
- Vertex gets scaling data on the effects of trading rewards to help direct business models in the future.
- Arbitrum gets data on the cost-effectiveness of incentives to Vertex.
> ~140M Daily Volume:
- Scale is achieved Vertex more than 2X.
- Vertex grows into a high-volume market leader that absorbs more organic on-chain trading demand for Arbitrum.
- Costs cap out at 2.55M total ARB, incentives distributed pro-rata vs. trading fees spent.
*NB – We use 140M as a reference point as we can think of it as the point where the incentives reach targeted effect by more than doubling Vertex’s trading activity.
- 140M = (EpochGrant Size*Price_ARB)/(Vertex_FeeCapture/28DaysinEpoch)
- ARB price = 0.8285 USDC and Vertex Fee Capture = 0.0175%
In both cases, the absorption of new LP TVL into Vertex via Elixir should prove sticky and help provide backup liquidity to the existing market maker flow that exists on the platform, and cost no more than 450K ARB.
The grant will be held in a ⅗ multi-sig.
ARB tokens will be disbursed using tooling already built for Vertex’s internal token program.
Elixir’s Fusion Pool incentives will be paid by the Vertex team using Elixir as agent.
Once the grant is confirmed:
Establish three separate, four-week epochs (12 weeks total) commencing immediately upon the proposal’s passing.
Publicize the incentives to garner interest and on-chain trading demand.
Prepare a report on the grant results, which can be built quickly but will need at least four weeks of data to properly demonstrate efficacy.
Once the 3 months conclude, and if grants are not utilized, the remaining ARB tokens will be returned to the DAO treasury.
Do you accept the funding of your grant streamed linearly for the duration of your grant proposal, and that the multisig holds the power to halt your stream?
Provide details about the Arbitrum protocol requirements relevant to the grant. This information ensures that the applicant is aligned with the technical specifications and commitments of the grant.
Is the Protocol Native to Arbitrum?:
Yes – Vertex is only available on Arbitrum.
On what other networks is the protocol deployed?:
What date did you deploy on Arbitrum?:
June 2022 - Core team commits to building on Arbitrum.
October 2022 - The first version of the protocol launches on Testnet.
April 2023 - Beta testing begins on mainnet with trading competition.
26th April 2023 - Full mainnet launch
The charts and graphics below express Vertex’s current key growth metrics pulled from third-party data providers and internal dashboards.
Impressive & Steady Volume Growth:
Volumes on Vertex are gradually increasing amid an extended bear market and historically low trading volumes across crypto. As of October 2, 2023:
- 7-day Volume = $391M
- 30-day Volume = $2B
- All-time Volume = $7.9B
Source – https://dune.com/frijoles/vertex?undefined=
Vertex’s growth places it amongst the fastest growing protocols across all of DeFi in the midst of a widespread bear market, as well as a leading derivatives DEX by volume. This grant application will help support Vertex’s low-cost, high-volume philosophy and help drive Arbitrum as the leading blockchain for on-chain derivatives trading: essential if dYdX dominance is to be challenged.
Source – Token Terminal (Percentage shown is share of Top 10 derivatives flow)
Since launch, Vertex has onboarded approximately 6,000 unique users, with 150 - 550 users transacting on the platform on a daily basis. They have shown strong retention rates, and the average visit duration of roughly 11 minutes on the Vertex app is significantly above average for DeFi applications. The visit duration on the app exists in spite of geofencing the US market, where US-based web traffic closely mirrors the high bounce rate (~40%) for the Vertex app domain.
Source – SimilarWeb (SimilarWeb Identity)
The user base continues to grow despite challenging market conditions, lagging market interest, and generally deflated volumes on crypto exchanges.
Vertex’s order book provides over $1M of executable liquidity on BTC and ETH perps within 0.10% of mid-price at exceptionally low fee levels. Vertex’s integration with Elixir will further deepen liquidity and improve execution for trading.
Market depth is echoed on ALT pairs with liquidity in the range of $100K-500K within 0.20% of mid-prices.
Coupled with low fees, actionable trading depth on Vertex is unparalleled by other DEXs, which remain constrained by the TVL inefficiencies of AMM and pool-based models where liquidity is limited in some combination of depth, fees or scaling. Conventional x*y=k are incredibly inefficient, and at some point, pool-based derivatives DEXs are always at risk of exhausting their liquidity.
Vertex consistently ranks amongst the top gas-consuming applications on Arbitrum.
The core Vertex contracts regularly consume 0.5% - 2.5% of the total gas fee market on Arbitrum.
Source – https://dune.com/vrtxc/arbitrum-gas-usage
The Vertex team has committed to community direction for roadmap planning as the protocol build is based on a responsive and agile philosophy that can adapt to the dynamism characteristic of DeFi. That being said, Vertex has pushed out numerous features since launch, including:
One-Click Trading: Allows users to sign one transaction from and begin trading without further wallet signing – offering users a simplified trading UX on par with CEXs.
Pools Page: Vertex’s integrated AMM enables LPs as margin and conventional x*y=k asset pools where liquidity from the AMM is injected into the orderbook.
Referrals: Anyone can generate a referral code and earn boosted trading rewards from their referrals.
Portfolio Page: More granular charts for user accounts on Vertex displaying portfolio stats like value, PnL, Balances, and Perp Trading.
Trading Pins: Users can always monitor their accounts with customizable pins within the Vertex UI to tailor their trading experience to their preferences.
New Markets: 23 markets have been added to Vertex since launch, including 19 perps and 4 spot markets.
Likely priorities for the next 12 months include:
Cross-chain integrations to help bring more users to Arbitrum.
Isolated Margin Accounts to simplify Vertex for retail users. Vertex utilizes unified cross-margin by default across spot, perps, and its embedded money market to maximize capital efficiency. Isolated margin would enable standard isolated margin perps as well, which are a popular request by users.
A mobile trading app to further expand Vertex’s appeal for different types of users. For example, the goal is to appeal to demographics like Robinhood traders in traditional equity markets who are interested in crypto trading and who primarily trade from the Robinhood mobile app.
Smart contract accounts to simplify and abstract away challenges with wallet UX.
Vertex maintains an ongoing relationship with the well-reputed auditing firm, OtterSec. OtterSec completed a full audit of the Vertex contracts prior to the mainnet launch, and continually provides auditing services and feedback on the Vertex codebase. The latest full audit from Ottersec is below:
Provide details on how your team is equipped to provide data and reporting on grant distribution.
Is your team prepared to create Dune Dashboards for your incentive program?:
Yes. Vertex is integrated with Dune Analytics via dashboards created by third parties and the team also maintains internal reporting tools.
Dune Analytics: https://dune.com/frijoles/vertex?undefined=
Vertex Stats Dashboard: https://stats.vertexprotocol.com/
Does your team agree to provide bi-weekly program updates on the Arbitrum Forum thread?
The proposed reporting would be based on constructing a suitable Dune Analytics dashboard specific to the outcome of the proposal’s incentives.
The dashboard would primarily capture the metrics expressed below as a rate of growth compared to the growth rate before incentives to illustrate a clearer picture of the incentives’ overall impact. This approach allows for isolating changes directly attributable to the incentive program, where a comparison of the post-incentive growth rates to the pre-incentive rate can be more accurately evaluated.
Comparison of the following growth metrics on a relative basis before and after the proposed incentives include:
Trading Volume: Measure the percentage change in trading volume, comparing it to the pre-incentive period.
Protocol Revenue: Calculate the percentage increase in trading fee revenue relative to the pre-incentive period.
New User & Retention Rate Comparison: Measure the percentage growth in the number of new users and active users compared to the pre-incentive phase – along with any changes in the user retention rate. This data can be supplemented with publicly available web traffic tools and analytics.
TVL Growth: Measure the growth of TVL during the incentives period.
Cost Analysis: Sequencer fees & market maker rebates changes.
More specific to the broader impact on the Arbitrum DAO, analyses composed of the following will also be applied to the dashboard:
ARB token impact: Report on how many tokens are distributed and to how many wallets
Gas Consumption Rate: Measuring any statistically significant variance in on-chain gas consumption of the Vertex contracts relative to current and historical data.
These metrics will help draw conclusions on the impact of token grants and how they can influence future thinking on Vertex’s fee model. They will also provide actionable data on how to optimize grants utilizing alternative incentive models in the future.
Does your team acknowledge that failure to comply with any of the above requests can result in the halting of the program’s funding stream?: